With the banks reducing the number of low deposit mortgages (i.e. a deposit of 10% and below) since Covid-19 hit in the spring, this has meant that the number of Neath first-time buyers has been decreasing quickly, meaning many of those would-be Neath buyers wanting to make the first step on the Neath property ladder will stay in the Neath rental sector.
This has caused
demand to grow amongst Neath renters
for larger homes to ride out Covid, as they hunker down for the long haul to
wait for normality to return to the property market.
This
has caused Neath rents to rise from £490 to the current £518 per month over the
last 12 months, an increase of 5.8%.
Interestingly, the opposite is happening in Central London, where
the rental tenants are having to pay have dropped by 3.8% in the last 12
months, as demand has dropped like a stone. It appears Central London tenants
are looking to move out to the suburbs, in search of bigger homes, gardens and
green open spaces. For example, the average rent for a 1-bed apartment in St.
John’s Wood currently stands at a very reasonable £1,817 per month whilst a
2-bed apartment in Kensington and Chelsea is currently at an average bargain
rent of £3,715 per month (yes, they might be low compared to last year, yet
for us in Neath, that still seems like a lot of money!). Also, there has
been further downward pressure on Central London rents, as many Airbnb landlords
have dumped their short-term holiday let properties onto the long-term rental
market as the tourism in the capital has dwindled because of the pandemic.
This has
been the sharpest drop in Central London rents since the summer of 2009, when the
property market was still stumbling from the Credit Crunch.
This means
there is a reverse of the trend of the 2010’s (2010 to 2018 to be exact), when initially
the London property market was shooting up whilst the rest of the country was in
the doldrums. Then, when the rest of the UK did start to rise slowly in 2013,
London kicked on even further like a rocket … yet now it appears the opposite
is happening.
Getting
back to Neath, according to the Land Registry, property values currently stand 4.7%
higher than a year ago; this is split down as follows:
- Detached Neath homes 4.6% higher
- Semi-detached Neath homes 5.4% higher
- Townhouse/terraced Neath homes 4.3% higher
- Neath apartments/flats 1.4% higher
Yet, do
remember, these figures do NOT take into account the prices paid by
desperate Neath buyers this summer, often paying top dollar to secure the
property. This will only filter through in the figures released in the spring.
So, why are the banks curtailing the number of low deposit
mortgages, meaning that first-time buyers must find a much larger down payment
before they are able to buy their first Neath property?
The reason is the banks are fearful of a house price crash in 2021
(although if you recall I wrote about that a few weeks ago and the reasons why
that is less likely to happen). They too are afraid of the frothy nature of the
property market since the end of the first lockdown in late spring. The bank is
lending its own money to buyers and no mortgage lender wants to be holding an
enormous amount of these types of high percentage mortgages if house prices fall
in 2021, because the bank would be saddled with negative equity and
repossession on their hands (and we all know what that did to the housing
market in the late 1980’s and early 1990’s as repossessions rocketed).
This can quite clearly be seen in the pricing and availability of low deposit mortgages. As the Bank of England has reduced its base rate to 0.1%, in the last 12 months 10% deposit mortgages rates have actually increased from 2% to 2.8%. Also, when lenders have been offering 10% mortgages throughout the summer, borrowers have had only a 24-hour window to commit before the lender withdraws the mortgage product from the market because of oversubscription. As with all economics, if demand is greater than supply, the price goes up. That extra 0.8% doesn’t sound a lot until you realise a first-time buyer would have to pay an additional £167 per month in interest payments on a 10% deposit mortgage, assuming they borrowed £250,000.
However, it’s not all doom and gloom for first-time buyers as there
are embryonic signs that the 10% deposit mortgage market could gradually be
returning to normal, as I have recently heard some lenders taking up to a week
for their 10% deposit mortgage offers to run out. Fingers crossed!
So, what does all this mean for Neath landlords?
Those Neath landlords with properties with gardens and larger rooms will be seeing increased demand. The ability to have pets in the rental property is also an advantage, and depending on the property, can add a decent premium to the rent that can be charged.
One final thought though for all homebuyers in Neath, be aware it’s
going to be very challenging to get your house purchase through in time to meet
the 31st March 2021 stamp duty holiday cut off if you are starting
the process in November. Make sure your lender and solicitor have the capacity
to meet that deadline and when you are asked for information, you drop
everything to provide it. The odd days’ delay here and there will mean the
difference between you getting the keys for your new Neath home before the end
of March 2021 and saving thousands of pounds in Stamp Duty Tax … or feeling a
fool from the 1st April 2021 and having to pay the tax!
